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The Colorado Legislature has hit an impasse on a proposal to restructure the Hospital Provider Fee.

What started as a bipartisan effort to break a three-year stalemate on the Hospital Provider Fee has morphed into partisan attacks from both sides over an unwillingness to compromise. At the beginning of the session in January, legislative leaders in both chambers and from both sides of the aisle made the two issues a priority.

During a morning meeting with reporters Thursday, Sen. Jerry Sonnenberg, R-Sterling, who has been leading provider fee talks for Republicans, declared that he is finished negotiating. "I'm done!" he said. Shortly afterward, though, Sonnenberg asked the Senate Appropriations Committee, which was hearing his legislation, to delay a vote, adding, "I am not ready to give up."

Meetings broke down Wednesday after Democrats rejected an offer by Republicans to ease a proposed reduction in the state spending limit.

Senate Bill 267 started with lowering the base by $670 million. Republicans on Wednesday offered to lower it by $335 million to appease Democrats.

"I'm frustrated, I'm very frustrated," Sonnenberg said. "I have come more than halfway and that ain't enough. ... I don't know where this goes from here."

Senate Democratic Leader Lucia Guzman of Denver, who is sponsoring Senate Bill 267 with Sonnenberg, said she simply can't accept lowering the base that much, as it would trigger taxpayer rebates faster, leading to significant budget cuts in the future.

"That's simply not economically feasible for us," Guzman said. "We'll be right back up at the cap next year, or the year after."

She placed some of the responsibility on House Speaker Crisanta Duran, D-Denver, who has been part of negotiations. Any Hospital Provider Fee proposal that is backed by the Republican-controlled Senate would have to survive the Democratic-led House.

"I have had a very politically energized communication with the speaker of the House during the wee hours of this day, and I have said this is my bill, as long as we are working it in the Senate, which is where it is, let us work this bill here," Guzman said.

Senate Bill 267 would restructure the Hospital Provider Fee as an enterprise fund, or government-owned business, to free money for spending and to save schools, roads and hospitals, especially in rural parts of the state.

The issue hit a tipping point this year as state budget writers proposed a $264 million reduction of the Hospital Provider Fee to eliminate surplus taxpayer rebates and free money for spending on other budget issues. The fee is assessed on hospitals to force a match of larger federal health care dollars. With the federal match, hospitals in Colorado stand to lose about $528 million. Some hospitals have said they would close.

The House on Thursday gave initial approval to legislation that would authorize the fee reduction. Without a more permanent solution, such as restructuring the fund, the reduction is necessary to balance the budget.

By placing the revenue from the fee in a separate fund, lawmakers would avoid hitting constitutional state spending limits under the Taxpayer's Bill of Rights, thereby freeing money.

Republicans have demanded lowering the overall base of state tax revenue in an effort to more quickly trigger taxpayer rebates. But Democrats say the fee never built up the TABOR base, arguing that Republicans want to lower it just for austerity.

Critics of lowering the base say that had the fee been structured correctly in the first place, the spending cap would be where it is now, so there's no reason to reduce it.

Another sticking point in the conversation is entitlement spending. Republicans insist that any money that is freed by restructuring the fee should not go to programs like Medicaid.

Democrats thought they offered Republicans a concession this year by agreeing to a 20-year bonding program. The legislation would direct $1.2 billion toward state roads and highways and at least $150 million would be used for capital construction.

At least 25 percent of the money would have to go toward projects in rural Colorado, with county populations of 50,000 or less.

The legislation would secure up to $100 million per year for 20 years to cover up to $1.35 billion by allowing the state to borrow money to undertake large projects. The first draft of the bill would have authorized lease-purchase agreements for state facilities, allowing the state to use its buildings as assets to leverage revenue.

But the legislation was amended after concerns were raised over the legality of authorizing such lease-purchase agreements. Instead, the bill would rely on certificates of participation, where the state would make lease payments for assets.

Also part of negotiations is help for seniors. Stakeholders are looking to avoid a cut to the Senior Homestead Exemption because of budget woes triggered by a lower spending limit. Seniors are able to reduce property taxes by exempting 50 percent of the first $200,000 in market value.

Despite the political gridlock over restructuring the fee, observers remain optimistic.

"Obviously the state budget and the idea of moving the Hospital Provider Fee are difficult issues. If they weren't, the HPF enterprise would have been passed three years ago," said Steven Summer, president and chief executive of the Colorado Hospital Association.

"Without this legislation - and with a budget cut of more than $500 million - many Colorado hospitals will immediately be forced to decide if they can keep their doors open, what services they must eliminate and how many employees will lose their jobs. This is unacceptable and will be truly devastating to our state."